The thing about this interest rate is that savings can not earn any more than it and loans cannot be less than it for simple market forces. The only thing keeping this interest rate will do is maintain the bubble. The moment it is risen, the economy will crash again.

At 12/16/2009 1:04:41 PM, wjmelements wrote:Say what? You specificially replied to my post saying that the federal reserve shouldn't charge an interest rate lower than the inflation rate by stating that the reserve rate included interest rate.

Yes I did reply to your post. Mainly explaining that the banks themselves factor in the interest rate. Why? Because its the banks that have the long term loans, not the federal reserve. The federal reserve itself doesn't really care about the inflation rate mainly because the federal reserve is simply using the OLR as a tool to increase liquidity in the market. By lowering the OLR past inflation, it's giving banks an incentive to lower their rates thus increasing borrowing and increasing spending.

Then don't imply that I don't know it by posting it in a reply to me.

Then don't imply that the Federal Reserve cares about losing money to inflation.

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At 12/16/2009 1:04:41 PM, wjmelements wrote:Say what? You specificially replied to my post saying that the federal reserve shouldn't charge an interest rate lower than the inflation rate by stating that the reserve rate included interest rate.

Blah off-topic about banks. Not talking about banks.

The federal reserve itself doesn't really care about the inflation rate mainly because the federal reserve is simply using the OLR as a tool to increase liquidity in the market. By lowering the OLR past inflation, it's giving banks an incentive to lower their rates thus increasing borrowing and increasing spending.

The federal reserve then is basically charging a negative interest rate (after inflation).

At 12/16/2009 1:29:41 PM, wjmelements wrote:Then you're just interested in creating another bubble.

If I was advocating keeping that rate at rock bottom for 10 years such as our brilliant past Fed-Reserve chairman did, then yes.

However I'm only for keeping it low until consumer spending begins to pick up, then upping it so that our GDP makes very modest gains for the next 10 years.

Worse, if hyperinflation does occur in the middle of this recession, interest rates will have to shoot up and the market will fail.

Stagflation is what you are referring to, however it's extremely doubtful that will happen as a turnaround is already being seen and inflation is still extremely low. When our dollar is cheap, then there is an incentive for countries abroad to buy goods made in the US.

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At 12/16/2009 1:29:41 PM, wjmelements wrote:Then you're just interested in creating another bubble.

If I was advocating keeping that rate at rock bottom for 10 years such as our brilliant past Fed-Reserve chairman did, then yes.

However I'm only for keeping it low until consumer spending begins to pick up, then upping it so that our GDP makes very modest gains for the next 10 years.

All loans made under this low interest rate will become unprofitable.

Worse, if hyperinflation does occur in the middle of this recession, interest rates will have to shoot up and the market will fail.

Stagflation is what you are referring to, however it's extremely doubtful that will happen as a turnaround is already being seen and inflation is still extremely low. When our dollar is cheap, then there is an incentive for countries abroad to buy goods made in the US.

Inflation itself necessarily only causes capital loss on all individuals holding the dollar. This gives them incentive to trade it, and the value goes down. When the dollars are finally traded into america, the capital loss occurs there instead.